New York – Following years of excellent profitability, entry into the expert network space is beginning to squeeze out some of the juice in the market. Integrity has over 40 expert networks in its database of research providers, up from over 20 a few years ago. Of course, the market is dominated by Gerson Lehrman, followed by a few larger competitors and a large number of smaller players.
Integrity’s definition of expert network is a firm that provides information transfer between its experts and its clients, without being involved in the consultation. This is different from a network of experts, which is the more tradition consulting model.
It is clear that the expert network space is in flux at present primarily because of the recession and entry into the industry. This has meant that the pricing models have come under pressure and expert network services will continue to evolve to an a la carte menu, rather than a smorgasbord.
We have seen a number of transactions in the space, the most recent of which was the partnership of Tribeca Insights and Business Connect China . Other changes are also taking place. The most interesting of these trends is the way in which experts are sourced. Some firms, such as Gerson Lehrman, Coleman and Guidepoint Global, have large stables of experts that are pre-qualified and ready to consult. Investors use expert networks for two reasons, depending on where they are in the investment cycle. If they are looking to invest, they are looking for juicy tidbits of information that no one else may have. Once they are into a position, they are seeking to confirm that they are not way off track by trying to get a sense of the consensus.
There are basically two ways to source experts. The first way is to find and qualify experts in every industry, hoping that they will be required by clients. This is an expensive approach and is the type employed the largest of the expert networks. Because to the regulatory scrutiny of these exchanges, the larger expert networks place a high degree of importance on compliance, so that they will not end up responsible for facilitating the exchange of material non-public information. The next way to source experts is through a custom recruiting model. These approaches are relatively effective and are lower cost, but tend to be light on compliance.
Apart from analogy, the expert model is evolving in a number of ways;
- The pricing model will continue to become more flexible, and profit margins will decrease.
- The expert networks will continue to migrate towards research products, by offering services such as panels and survey work to their members. To the extent that they interpret the data for clients, they may move towards more traditional research products. The field will continue to consolidate.
- The field will continue to become more global in perspective.
Because of the economics on the business, we are concerned: not about the value of the information provided from a bifurcated expert network space, but by the incentives tacitly being provided to investors and money managers to cut compliance corners to save money.